BAA airport sale squeezes Prestwick
Have you ever had one of those weeks when things just seem to go from bad to worse? If so, you’ll be able to empathise with Infratil.
In response to the general downturn and gloom, the bucket shops are reducing capacity and cutting routes. Flybe, the mainstay of Manston’s struggling passenger business, is on the ropes and cutting routes that are busier than the infrequent services out of Manston – which doesn’t bode well.
And now, to cap it all, BAA (easily the largest airport operator in the country) is moving the goal posts and increasing the competitive pressure on Prestwick, Infratil’s busiest airport outside New Zealand.
Back in 2009, the Competition Commission decided that it was against the public interest for BAA to own so many airports across the UK, and ordered it to sell some. Stansted was flagged as one to sell, and BAA were told to choose which of their Scottish airports (Glasgow or Edinburgh) to put a price sticker on next.
BAA kicked up a stink and spent over 2 years arguing the toss through the courts. The Competition Commission have now surprised most people (not least BAA) by apparently accepting that there’s plenty more arguing to be done over Stansted, and telling BAA that, in the meantime, they will have to reverse the original sequence of the sell-off and sell one of the Scottish airports before they sell Stansted.
So what? Well, BAA are being pushed to decide quickly, and have said that the decision will be made “shortly”. In fact, it’s quite likely that the decision has been made already. In the full year of 2010, Edinburgh carried 8.59 million passengers, Glasgow 6.52 million. Edinburgh carried 20,357 tonnes of freight, Glasgow 2,914 tonnes. Mail is another money-spinner: Edinburgh carried 23,726 tonnes of mail, Glasgow carried 19 tonnes.
In BAA’s shoes, which airport would you sell? Yup, it’s goodbye to Glasgow. There have been rumours that Infratil could be among the bidders, but with numerous airport owners and other investors lining up to make bids, several sources say that the Competition Commission is likely to opt for a new competitor. According to Louise Congdon, managing partner at leading consultancy York Aviation:
“A new owner can only mean increased competition for Prestwick. For whatever reason, BAA has chosen to promote growth at Edinburgh more than Glasgow. A new owner with only one airport in the central belt would behave differently.”
So a lean and hungry operator, let’s call them ThinAir for the sake of argument, swoop in to snatch Scotland’s second biggest airport from BAA’s grasp. In contrast to BAA, who were happy to under-invest in Glasgow and lazily capitalise on Edinburgh’s pre-eminence, ThinAir will promote and develop Glasgow aggressively. They will almost certainly start with the ambition to replace Edinburgh as Scotland’s Number One Airport.
ThinAir’s backers and bankers will be braced for a profitless year (or several), as ThinAir streamline operations, strike hard bargains, offer tempting deals, and work flat-out to make themselves the most attractive option for national and international carriers.
Meanwhile, Prestwick are facing 25% year on year falls in passenger numbers, and their staffing has already been cut to the bone. With a voracious new competitor just down the road (and a lot closer to Glasgow) Prestwick will see its passengers and its future disappear into, well, ThinAir.
Infratil is large-scale, professional and successful, and doubtless has a rolling programme of strategic reviews across its market sectors. Infratil promises its investors a 20% return on investment, and finds it increasingly hard to present its foray into European airports as anything other than a blunder.
The persistent and worsening European economic malaise, and the unfavourable shifts in the competitive landscape in UK aviation are large enough and long-term enough to trigger a cut-and-run firesale of Prestwick and Manston. Infratil would crystallise its losses and return to New Zealand to lick its wounds and concentrate on its core businesses in familiar markets.
BAA Airports Ltd., the owner of London’s Heathrow Airport, will disclose “shortly” whether it plans to sell Edinburgh or Glasgow airport.
BAA, which is owned by a group of investors including Spain’s Ferrovial SA, won the agreement of the Competition Commission to bring forward the sale of one of its three Scottish airports while it challenges a ruling to sell Stansted, northeast of London, the company said in a statement today. Chief Executive Officer Colin Matthews said:
“Both Edinburgh and Glasgow are great airports with great futures. We will be sorry to see one of them leave BAA.”
The airport operator is seeking a judicial review of the regulator’s 2009 decision to force the sale of Stansted, one of London’s three airports. The regulator reaffirmed in July that it should sell Stansted to boost competition among airport operators. It’s already sold London Gatwick.
The commission said in 2009 and again in July that BAA had to sell Stansted before disposing of either Edinburgh or Glasgow airport. BAA is being allowed to keep Aberdeen airport, in north east Scotland.
Edinburgh, the busiest of Scotland’s airports, handles 9 million passengers a year, according to its website. Glasgow had 6.5 million passengers in 2010.
Bloomberg BusinessWeek 7th Oct 2011